Tax changes to make system fair not stifle business growth: Trudeau

Prime Minister Justin Trudeau speaks to press at the Gateway Conference, in Toronto on Monday, September 25, 2017.

Image Credit: THE CANADIAN PRESS/Christopher Katsarov

September 25, 2017 - 8:45 PM

OTTAWA - Prime Minister Justin Trudeau says the government has no intention of stifling growth for small businesses and start-ups with its upcoming changes to the tax code.

Trudeau said Monday he has listened to the feedback and agrees with some of it, and that the government is now looking at balancing the need to make the tax code more fair without hurting investment.

"We need to make sure we are encouraging entrepreneurs, encouraging risk takers, encouraging success in the start-ups," Trudeau told reporters at an event in Toronto.

The consultation period on the proposals ends next week and anxiety is high for business owners awaiting their fate and for politicians getting an earful from them.

That anxiety may continue at least until after Thanksgiving as it is expected to take the government at least a week to figure out its next step.

There are three main facets to the Liberal tax changes, some of which Trudeau campaigned on.

The first affects business owners, including professionals such as doctors and lawyers, who have incorporated, and have effectively reduced their income tax burden by "sprinkling" their income among adult family members who may not be doing any work for the business in return. The government's proposal is to create a test to ensure any income paid to family members is fair compensation for work actually provided.

The second aspect affects how corporations make investments that may be intended to benefit the owner rather than business but using income that is taxed at lower business rates than individual rates.

The third is about imposing new limits on converting business income into capital gains where it is taxed at lower amounts.

The changes were circulated in a discussion paper by Finance Minister Bill Morneau in July, with the Liberals always saying they were meant just for discussion.

"If the Liberals were listening to Canadians, they would hear that raising taxes will keep local businesses from creating jobs, employing Canadians, and investing in their communities," Conservative Leader Andrew Scheer said Monday as the Opposition continued its attack on the ideas.

Conservatives and other critics say business owners take risks others don't and don't always have access to benefits such as employment insurance.

The Conservatives also say these changes will affect middle-class business owners, who fall into the same category of middle-class Canadians the Trudeau government claims to be working to help the most.

The Liberals have countered saying their changes are intended to only go after the most wealthy using their incorporated status to pay less tax than Canadians who earn less money.

Two new reports released this week on the issue provide fodder for both sides.

The Canadian Taxpayers Federation notes people who make more than $100,000 account for just 8.4 per cent of taxpayers but pay 52 per cent of the total tax bill. This study also says the top one-per cent of tax filers pay more than one-fifth of all personal income taxes.

On the other hand, the Canadian Centre for Policy Alternatives says just 0.7 per cent of Canadian families are going to be impacted by the government proposal to not allow businesses to sprinkle income to other family members.

The CCPA also hit back against accusations the policies may affect women more than men. Their numbers say out of the 117,000 small business families who will receive any net benefit from income sprinkling, 98 per cent are headed by a man.